The Pros and Cons of Downsizing to a Smaller Home When You Retire (2024)

Jan. 18, 2023

You're not alone in thinking about downsizing. Maybe you're not quite retired but planning now while you're still working. Many often ask themselves, "At what age do most seniors downsize? What percentage of retirees downsize?"

According to SeniorLiving.org, "Roughly 51 percent of retirees ages 50 and over move into smaller homes after retirement."

Firstly, when contemplating downsizing your home, what are your financial goals?

When considering selling your old home to move into a smaller house for retirement, it is important to consider how to best meet both your financial and lifestyle goals. In your retirement planning, start by creating a monthly budget for your housing expenses and considering how much money you will have left over to play with.

Utility costs and housing expenses you expect to pay to include: water, trash, waste/sewer, electricity, gas, cable, internet, mortgage, car payments, car Insurance, homeowner's insurance, property taxes, and landline phone service.

During your home search, your real estate agent might have some averages for the neighborhoods you're interested in. We also recommend talking to the neighbors, if you can. They may share their average monthly expenses.

Here's an example of monthly fees for a small 1,362 square feet., 2 bedroom, and 2 bathroom home built in 2018 at Valley View at Sunrise Hills, Fort Mohave, Arizona:

Water - $50
Trash Pickup - $20
Electric - $60 to $150 (Avg. $70-85)
Internet - $78
Home Loan - if applicable.

Another good idea would be to contact both your tax and financial professional for their advice.

Secondly, what are your lifestyle goals for your retirement?

The Arizona desert lifestyle here in Mohave County and Clark County is where residents enjoy popular retirement activities such as:

Your decision to downsize may be because you're seeing the signs that hint that it's time to sell your big home.

How much have your monthly housing expenses risen?

"HUD defines cost-burdened families as those 'who pay more than 30 percent of their income for housing' and 'may have difficulty affording necessities such as food, clothing, transportation, and medical care.' Severe rent burden is defined as paying more than 50 percent of one’s income on rent." –Policy Development & Research

Is the cost of living in your larger home getting higher and higher? Everyone's seemed to raise their rates which can easily put you into this category. Are you carrying more debt than expected which depleted the emergency fund or the fun-in-retirement savings? Remember, retirement living moving forward could mean a fixed retirement income.

Your current home and living situation no longer fits your needs.

No more kids in the home? How many extra bedrooms do you need? Do you still need that home office?

Do you feel overwhelmed with home maintenance?

You get closer to being ready to downsize as the family home may have these annoyances:

You dread every winter having to shovel snow and the continuous snow removal on your wide pathways and extended driveways.
Lawn care has become challenging, a lot of maintenance, and a true chore.
Weekly landscaping requires rigorous upkeep that you've hired help.
Dusting the rooms, walls, shelves, and decorations you wonder where's your free time?
From an excessive amount of windows to keep spotless plus floors and stairways to vacuum is starting to feel burdensome.

Additionally, do you find yourselves being the oldest resident(s) in your neighborhood?

If you want a change in scenery or a more active retirement community, that could be another factor to take into account when deciding whether or not to downsize.

Ultimately, it is up to you to decide what is most important for your financial stability and lifestyle satisfaction during retirement. moving out of state could be an option.

Pros: 7 Great Benefits of Downsizing Your Home in Retirement?

1. Smaller Mortgage Payments... Could You Even Make Money?!

A smaller mortgage payment can free up some much-needed extra income each month, especially for retirees on a fixed income. The best case scenario is if you fully paid for your home years ago and have no mortgage. The National Association of Realtors experts say the national average homeowner has lived in their home for at least 6-18 years varying in different areas around the country. But if you still have a mortgage... according to Edward Jones, "In recent years, housing prices have risen greatly in many areas of the country, so, if you downsize your home, you could walk away with a tidy sum. And the sale of your primary residence may be exempt from capital gains taxes on the first $250,000 (if you file taxes as a single taxpayer) or $500,000 (if you’re married and file jointly)."

In the downsizing process, your real estate agent can discuss how home prices, state income tax, property taxes, and mortgage interest rates affect your downsizing options. A real estate professional can guide you in selling your home in today's market, discuss the criteria for your next place, and assist in all phases of your home purchase... from beginning to end of your real estate transaction. Let your home advisor help find ways to shrink your financial responsibilities so you can use the money you've saved for making those bigger plans for retirement.

The extra cash you can invest in yourself for a first-time experience, such as learning a new hobby or traveling to the best places on your bucket list.

2. You Can Finally Focus on Decluttering Belongings You No Longer Need.

3. Stress Less with Fewer Chores in a Smaller House

4. Less Maintenance and Cheaper Upkeep

5. Use the Free Time for New Hobbies and Interests

Less housework means more freedom and money for fun activities, leisure, and travel. Now, you can enjoy all the things you couldn't do because you had a working life.

6. Better Social Life

Downsizers now have time for social events, travel to popular destinations, and seeing their family members. To combat loneliness, some retirees move to active retirement communities building up their social network.

7. Arizona and Nevada boast excellent tax advantages, making them some of the best states for a retiree's lifestyle change.

Did you know, you may not owe any income tax on the profits of selling your home?

Make sure to consider property taxes where you choose to retire. According to SmartAsset, the average Arizona property tax rate in Mohave county... which includes Fort Mohave and Bullhead City... is 0.700% while the average Nevada property tax rate for Clark county... our Laughlin area... is 0.640%. "Nevada has the further benefit of not levying a state income tax, whileArizona tax lawshave no gift or estate tax, nor does it tax social security payments. Some pensions are also exempt from Arizona state income tax." –55places.com

Cons: 5 Reasons Not to Downsize in Retirement

1. Will it be too expensive to buy and sell?

Overall, downsizing to a smaller home can be an easy way to reduce stress and save money, but it's important to do your research first before making such a big decision such as being aware of possible short-term, upfront costs involved with moving.

1. What, if any, repairs are needed on your home before selling? Remember, the buyer will most likely request a home inspection and when that home inspection report comes in, the buyer might request a few repairs. Luckily, if you are selling your home with us, we can call Black Mountain Maintenance to look into where they can save you money.
2. Will you be moving to your next home but it needs some home renovations?
3. Is your current furniture perfect for your large home but not a good fit for your smaller space? You should also consider the expense of shopping for new furniture.
4.You may also want to hire a moving company to do the work for you. If so, budget for moving costs. (Solution: you can always lessen your moving expenses with the help of family and friends to lend a hand... or their trucks and vans!)

2. Remember the 6% in real estate commissions on a home sale and any closing costs.

6% is the industry average but it could be less. Something to discuss when you interview real estate agents.

3. Will you be adjusting to a new community?

Yay, you're no longer tied down to a career! Maybe you want to be closer to family... those grandkids, too... but you might be looking at a new town, new state, and new community with its own set of new rules - HOA, pet policies, etc...

4. Will it be difficult to bid farewell to your house full of memories?

If necessary, make sure to get the aid of a professional organizer to help you streamline your belongings - the holiday decor, any collectibles, files, bulky items, music equipment, sports equipment, outdated electronics, cds / dvds / records / vhs tapes, the kitchen gadgets to the fine china and all the knick-knacks in the miscellaneous categories. They can provide emotional support; manage the disposal, giving away, or selling of unnecessary possessions; assist you to deal with navigating an eternity of recollections that will be intimidating — and exhausting; and provide tips that will assist you in keeping your home tidy... ultimately, preparing your home to sell.

5. Will you feel cramped in less space or privacy?

The size of your former family dwelling may have been considerable. You wonder if you'll find contentment with the reduced square footage and carbon footprint.

An alternative for many retired people has been to move in with family. Did you know: Multigenerational households in Arizona and Nevada both averaged 4.4%? If this is an option for your family, an agent can help you find the right home that will accommodate everyone.

Buying or Selling. Let Us Guide You Home.

Let Black Mountain Valley Realty help you understand today's real estate market and simplify your home transitions. Talk to a Down Sizing Home Specialist.

Don't make the mistake of overestimating or underestimating your home's value. Speak to one of our Realtors® to help with these financial decisions, discuss median home prices, and talk about the best option for your housing costs. There's no quick answer because your current situation is different from another person's circ*mstances.

Our advisory services are complimentary. For Senior Relocation Assistance, give us a call today.